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Low-Fee Mutual Funds

May 2nd, 2007 ·

As you can tell, I am not a big fan of mutual funds and prefer to invest in equities, ETFs and index funds. However, I am not dogmatic in my beliefs and there are some instances in which you have to invest in mutual funds (for instance, you could have a group RRSP through your employer with a poor selection of index funds). While, picking a mutual fund that will produce decent future returns is a hazardous enterprise, many studies have shown that the two factors that correlate highly with good performance are low cost and low turnover.

With that in mind, I used the filter from GlobeFund.com to search for Canadian equity mutual funds that have a MER of 1.5% (far lower than the average Canadian fund that charges a fee of 2.6%) and added a few funds that I researched through my group RRSP plan. I further filtered out F-series funds (for which extra adviser fees are extra), funds that charge a front- or back-load, funds targeted to high net-worth individuals and index funds to come up with a very short list:

Philips, Hager and North Canadian Equity Fund - MER 1.13%
McLean Budden Canadian Equity Fund - MER 1.25%
Mawer Canadian Equity - MER 1.25%
Steady Hand Equity Fund - MER 1.35%
Leith Wheeler Canadian Equity Fund - MER 1.4%
RBC O’Shaughnessy Canadian Equity - MER 1.49%
Standard Life Canadian Dividend Growth Fund - MER 1.5%

It is amazing to note how short the list is: out of about 1000 Canadian equity funds in the GlobeFund database, only a handful charge fees a full percentage point below the average. Do you know of any other low-cost mutual fund that could be added to the list? Let me know in the comments.

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11 responses so far ↓

  • 1 FinancialJungle.com // May 2, 2007 at 9:01 pm

    PH&N, McLean Budden, Mawer, Leith Wheeler and O’Shaughnessy are all respected names. I invested $17k in O’Shaughnessy for 2 years.

    Although I don’t have another sub 1.5% MER fund to offer, I just want to share a classic story where my friend was recommended to buy the RBC Canadian Equity fund by a branch advisor. This fund has a dear MER of 2.42%, even though the O’Shaughnessy Canadian has less MER, less volatility and better performance than RBC Canadian Equity. Just feel like complaining. :P

    Anyway, I tend to avoid Canadian large cap funds, because they overlap too much with my individual stocks. I like O’Shaughnessy because it doesn’t mimic the TSX like most other funds do. I also have Chou funds whith MER ~1.7. I think it’s worth. For one, Francis Chou has a deep value investing philosophy. Secondly, the MER is still way lower than most other Canadian equity funds, which are mostly closet index funds.

  • 2 Gwaine // May 3, 2007 at 8:58 am

    Apparently, O’Shaughnessy was given full access to historical stock data and tried out numerous different types of stock screeners. He came up with his own screen that yielded good results against the data and so created some mutual funds that used his new screen.

    I believe his approach is public info so you can replicate his strategy in your own portfolio by buying the stocks directly. I use his funds at the moment to get good diversification, but once I’m rich I’ll probably invest in stocks directly using his strategy. There’s more info here: http://www.winninginvesting.com/what.htm

  • 3 Canadian Capitalist // May 3, 2007 at 10:50 am

    Financial Jungle: The other test is low turnover and I am not sure RBC O’Shaughnessy will pass that test (from Gwaine’s comment, it may not). It is the subject of a future post.

  • 4 Rob // May 3, 2007 at 7:14 pm

    Whats about these funds at steady hand?

    http://www.steadyhand.com/funds/

  • 5 Doug // May 4, 2007 at 11:16 am

    PH&N Dividend Income has a very low MER as well and much better 10 year performance than PH&N Canadian Equity.

  • 6 Weekend Reading - May 4, 2007 - Million Dollar Journey // May 4, 2007 at 9:12 pm

    [...] Canadian Capitalist posts about some low fee mutual funds. [...]

  • 7 Joe // May 5, 2007 at 3:53 pm

    This is a pretty low-cost at about 1.5 - 2.5% (and newer) US Equity fund from a proven manager:
    http://www.sarbit.com/media/files/simplifiedprospectus.pdf

  • 8 Wolf Stone // May 7, 2007 at 11:18 am

    Hey canadian cap…you n me are O Shaughnessy brothers!!
    i quite like their quant methods…however i might switch over the to Sprott Global Equity Fund (i dont mind paying more for better performance) after a couple of years…depending on how their new manager performs !!

  • 9 Canadian Capitalist // May 7, 2007 at 12:26 pm

    Wolf: I should clarify that this is not a list of mutual funds I am invested in. I am simply trying to seek out low-cost mutual funds. I also don’t believe you should chase fund performance. FD: Leith Wheeler is the only fund I am personally invested in.

  • 10 Earl // May 7, 2007 at 5:42 pm

    Well I belong to that group that has to contribute to a company RRSP mutual fund plan because of matched contributions. Anyway with Sunlife the MER range between 0.6% - 0.9% for the foreign equity content. This seems much lower than some of your posted MER rates. I just don’t know how it’s performing in comparison to an index.

  • 11 Ernesto Icogo // Jul 27, 2007 at 6:22 am

    Please add to portfolio:

    Canadian Equity Fund - Philips, Hager & North
    Please contact: IIR UK Limited
    29 Bressenden Place
    SW1E 5DR London
    United Kingdom
    Telephone: +44 0 20 7017 7200
    Facsimile: +44 0 20 7017 7807
    Care of: Lorraine Ward

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